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Questions and Answers
What are the three basic activities of accounting?
What are the three basic activities of accounting?
- Analyzes, records, and evaluates
- Identifies, records, and communicates (correct)
- Collects, stores, and reports
- Identifies, stores, and reports
Which user is most concerned with whether the company earned satisfactory income?
Which user is most concerned with whether the company earned satisfactory income?
- Investors (correct)
- Taxing Authorities
- Management
- Human Resources
What is the fundamental reason ethics is a crucial concept in accounting?
What is the fundamental reason ethics is a crucial concept in accounting?
- To avoid legal penalties
- To increase revenue
- To maintain the integrity of financial reporting (correct)
- To ensure accurate data entry
Which assumption states that a business's financial statements are prepared using consistent currency?
Which assumption states that a business's financial statements are prepared using consistent currency?
What equation summarizes the relationship among a business's assets, liabilities, and equity?
What equation summarizes the relationship among a business's assets, liabilities, and equity?
Who is primarily responsible for deciding whether to eliminate any product lines?
Who is primarily responsible for deciding whether to eliminate any product lines?
What is the term for the detailed record-keeping part of the accounting process?
What is the term for the detailed record-keeping part of the accounting process?
Which of the following is NOT a category of internal users of accounting data?
Which of the following is NOT a category of internal users of accounting data?
Which principle dictates that companies must record assets at their original cost?
Which principle dictates that companies must record assets at their original cost?
What would happen if the activities of two separate businesses are combined?
What would happen if the activities of two separate businesses are combined?
Which of the following describes a corporation?
Which of the following describes a corporation?
What are liabilities in the context of the basic accounting equation?
What are liabilities in the context of the basic accounting equation?
What does the basic accounting equation illustrate?
What does the basic accounting equation illustrate?
Which assumption states that a business's activities should be accounted for separately from its owners?
Which assumption states that a business's activities should be accounted for separately from its owners?
If fair value exceeds cost, what does the cost principle dictate?
If fair value exceeds cost, what does the cost principle dictate?
Which of the following is NOT considered an asset?
Which of the following is NOT considered an asset?
What does the basic accounting equation express?
What does the basic accounting equation express?
Which component of the accounting equation represents an ownership claim on total assets?
Which component of the accounting equation represents an ownership claim on total assets?
Which of the following is an example of revenue?
Which of the following is an example of revenue?
How do dividends affect retained earnings?
How do dividends affect retained earnings?
Which of the following transactions would decrease equity?
Which of the following transactions would decrease equity?
What would be an effect of recording a service revenue transaction?
What would be an effect of recording a service revenue transaction?
Net income will result during a time period when:
Net income will result during a time period when:
Which of the following is NOT classified as an expense?
Which of the following is NOT classified as an expense?
Which of the following would represent a dual effect on the accounting equation?
Which of the following would represent a dual effect on the accounting equation?
Which of the following financial statements is prepared as of a specific date?
Which of the following financial statements is prepared as of a specific date?
The ending balance in retained earnings is necessary for preparing which financial statement?
The ending balance in retained earnings is necessary for preparing which financial statement?
How many financial statements are typically prepared by companies?
How many financial statements are typically prepared by companies?
The relationship between which two financial statements is essential for preparing the statement of cash flows?
The relationship between which two financial statements is essential for preparing the statement of cash flows?
Which component is NOT required to determine the net income of a company?
Which component is NOT required to determine the net income of a company?
Which statement best describes the income statement?
Which statement best describes the income statement?
Which of the following is an example of a private accounting role?
Which of the following is an example of a private accounting role?
What does the monetary unit assumption require?
What does the monetary unit assumption require?
Which of the following is a form of business ownership where the owner has unlimited liability?
Which of the following is a form of business ownership where the owner has unlimited liability?
What is a key characteristic of a corporation as a form of business ownership?
What is a key characteristic of a corporation as a form of business ownership?
Which of the following statements about partnerships is true?
Which of the following statements about partnerships is true?
Which of the following accurately describes the economic entity assumption?
Which of the following accurately describes the economic entity assumption?
What are the three steps in the accounting process?
What are the three steps in the accounting process?
Which statement about external users is false?
Which statement about external users is false?
What is a disadvantage of a proprietorship?
What is a disadvantage of a proprietorship?
What do revenues represent in the context of an entity's operations?
What do revenues represent in the context of an entity's operations?
Which standard does the Sarbanes-Oxley Act pertain to for U.S. publicly traded companies?
Which standard does the Sarbanes-Oxley Act pertain to for U.S. publicly traded companies?
Which of the following is a potential benefit of having a single set of high-quality international accounting standards?
Which of the following is a potential benefit of having a single set of high-quality international accounting standards?
How does IFRS differ from GAAP in terms of its approach?
How does IFRS differ from GAAP in terms of its approach?
Which option is not a fundamental element of accounting as defined by the IASB and FASB?
Which option is not a fundamental element of accounting as defined by the IASB and FASB?
What is included in the definition of expenses?
What is included in the definition of expenses?
Which of the following statements about GAAP is false?
Which of the following statements about GAAP is false?
In the push for improved accounting standards, what remains uncertain regarding the IASB?
In the push for improved accounting standards, what remains uncertain regarding the IASB?
Flashcards
Accounting definition
Accounting definition
Identifying, recording, and communicating economic events of an organization to interested users.
Accounting users (internal)
Accounting users (internal)
Stakeholders within a company, like management, marketing, and finance.
Accounting users (external)
Accounting users (external)
Stakeholders outside a company, including investors, taxing authorities, creditors, and customers.
Accounting process
Accounting process
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Internal Accounting Users Question
Internal Accounting Users Question
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External Accounting Users Questions
External Accounting Users Questions
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Financial Resources
Financial Resources
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Accounting Equation
Accounting Equation
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Monetary Unit Assumption
Monetary Unit Assumption
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Economic Entity Assumption
Economic Entity Assumption
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Proprietorship
Proprietorship
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Partnership
Partnership
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Corporation
Corporation
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Accounting Process Steps
Accounting Process Steps
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External Users (Common)
External Users (Common)
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Limited Liability (Corporations)
Limited Liability (Corporations)
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IASB
IASB
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Cost Principle
Cost Principle
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Violating the Economic Entity Assumption
Violating the Economic Entity Assumption
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Assets
Assets
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Liabilities
Liabilities
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What is the accounting equation?
What is the accounting equation?
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What are assets?
What are assets?
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What are liabilities?
What are liabilities?
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What is equity?
What is equity?
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What are revenues?
What are revenues?
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What are expenses?
What are expenses?
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What are dividends?
What are dividends?
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How do transactions impact the accounting equation?
How do transactions impact the accounting equation?
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Financial Statements
Financial Statements
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Income Statement
Income Statement
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Retained Earnings Statement
Retained Earnings Statement
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Statement of Financial Position (Balance Sheet)
Statement of Financial Position (Balance Sheet)
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Statement of Cash Flows
Statement of Cash Flows
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What does 'Net Income' represent?
What does 'Net Income' represent?
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How are financial statements related?
How are financial statements related?
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Which financial statement is prepared as of a specific date?
Which financial statement is prepared as of a specific date?
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Revenue
Revenue
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Expense
Expense
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What are the core accounting elements influenced by the IASB and FASB conceptual framework?
What are the core accounting elements influenced by the IASB and FASB conceptual framework?
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Why are international accounting standards beneficial?
Why are international accounting standards beneficial?
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What does Sarbanes-Oxley Act regulate?
What does Sarbanes-Oxley Act regulate?
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How does IFRS differ from GAAP?
How does IFRS differ from GAAP?
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What is the cost principle?
What is the cost principle?
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What is the economic entity assumption?
What is the economic entity assumption?
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Study Notes
Book Information
- Weygandt, Kimmel, Kieso
- Financial Accounting
- IFRS Edition (2e)
- Prepared by Coby Harmon, University of California, Santa Barbara
Chapter 1: Accounting in Action
- Learning Objectives:
- Explain what accounting is.
- Identify the users and uses of accounting.
- Understand why ethics is a fundamental business concept.
- Explain accounting standards and the measurement principles.
- Explain the monetary unit assumption and the economic entity assumption.
- State the accounting equation, and define its components.
- Analyze the effects of business transactions on the accounting equation.
- Understand the four financial statements and how they are prepared.
What is Accounting?
- Accounting consists of three basic activities:
- Identifying economic events (transactions).
- Recording, classifying, and summarizing.
- Communicating to interested users.
- The accounting process includes bookkeeping.
Who Uses Accounting Data?
- Internal Users: Finance, Marketing, Management, Human Resources
- External Users: Taxing Authorities, Labor Unions, Customers, Investors, Creditors, Regulatory Agencies
Common Questions Asked (Internal/External Users):
- Can we afford to give our employees a pay raise? (Human Resources)
- Did the company earn a satisfactory income? (Investors)
- Should any product lines be eliminated? (Management)
- Is cash sufficient to pay dividends to shareholders? (Finance)
- What price for our product will maximize net income? (Marketing)
- Will the company be able to pay its debts? (Creditors)
Ethics in Financial Reporting
- Standards of conduct judging actions as right or wrong, honest or dishonest, fair or unfair.
- Recent scandals: Enron (USA), Parmalat (ITA), Satyam Computer Services (IND), AIG (USA), and others.
- Sound ethical behavior is crucial for effective financial reporting.
- Steps in analyzing ethical situations:
- Recognizing an ethical situation and issues.
- Identifying and analyzing stakeholders, responsibilities, and obligations.
- Identifying alternatives and evaluating impact on various stakeholders.
Accounting Standards
- International Accounting Standards Board (IASB) (http://www.iasb.org/)
- International Financial Reporting Standards (IFRS)
- Financial Accounting Standards Board (FASB) (http://www.fasb.org/)
- Generally Accepted Accounting Principles (GAAP)
Measurement Principles
- Cost Principle: Companies record assets at their cost.
- Fair Value Principle: Assets and liabilities should be reported at fair value (price received to sell).
Monetary Unit Assumption
- Accounting records include only transaction data expressed in monetary terms.
Economic Entity Assumption
- Entity's activities are kept separate from its owner and other economic entities.
- Proprietorship
- Partnership
- Corporation
Forms of Business Ownership
- Proprietorship: Owned by one person. Small, service-type businesses.
- Partnership: Owned by two or more people. Often retail or service-type businesses.
- Generally unlimited personal liability.
- Corporation: Ownership divided into shares. Legal entity. Limited liability.
Basic Accounting Equation
- Assets = Liabilities + Equity
- Provides a framework for tracking economic events. Applies to all entities.
- Assets: Resources owned by a business; provide future services/benefits. (e.g., cash, inventory, equipment)
- Liabilities: Claims against assets (debts/obligations), owed to creditors. (e.g., accounts payable, notes payable)
- Equity: Owner's claim on total assets (residual equity).
- Increases: Investments by shareholders, Revenues
- Decreases: Dividends to shareholders, Expenses
Transaction Analysis
- Events recorded as a business's economic events. May be internal or external. Not all activities are transactions. Each transaction has a dual effect on the accounting equation.
Financial Statements
-
Four main statements:
- Income Statement
- Retained Earnings Statement
- Statement of Financial Position
- Statement of Cash Flows
-
Net income (revenues > expenses).
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Description
Dive into the fundamentals of accounting with Chapter 1 of the IFRS edition of Financial Accounting. This quiz covers key concepts including the accounting equation, ethical considerations in accounting, and the users and uses of accounting. Test your understanding of financial statements and the accounting process.